Non-Manufacturing Activity's Growth Slows In June - July 5, 2012

In yet one more piece of underwhelming economic news, the Institute for Supply Management (ISM), the Arizona-based trade group reported within the past hour that non-manufacturing activity had slowed its rate of growth in June, with that survey coming in at 52.1. The reading was below both the May survey result of 53.7 and the consensus ISM forecast for the month of 53.0.

This was the second report in several days from the ISM that has disappointed economists and investors alike. Just on Monday, the trade group reported that manufacturing activity had declined in June, falling to a reading of 49.7. That was the first decline in that survey in almost three years.

Meanwhile, although the report issued this morning indicated that the non-manufacturing, or the services sector, was still showing growth for this area of the economy, it was a disappointing reading, nonetheless. Also, within the overall survey, there were some individual sectors that were seeing either lesser rates of growth or outright declines in activity. Specifically, we are seeing slower growth in new orders, supplier deliveries, and inventories. More ominously, the report signaled that backlogs were falling rather notably, easing from 53.0 in May to just 47.5 last month. Also, exports declined last month, as did prices, which, in this latter case, might not be a bad thing. Encouragingly, though, the report indicated that employment had actually stepped up its growth rate in June.

The employment report is especially welcome, as it paralleled an upbeat survey on job growth issued earlier this morning by ADP, which noted the addition of 176,000 new payrolls in the private sector in June. That report and the ISM non-manufacturing survey are to be followed tomorrow morning by data on non-farm payrolls and the unemployment rate from the U.S. Labor Department. Expectations currently are that the nation created about 100,000 new jobs last month, while the jobless rate is forecast to have stayed level at an elevated 8.2%.

In the meantime, the non-manufacturing result, at 52.1--which was just modestly above the 50.0 dividing line between an expanding services sector and one that is contracting--was the weakest such reading in more than a year. In the past 12 months, by comparison, this survey has ranged from a low of 52.6, which was recorded for three straight months--September, October, and November. The 12-month high of 57.3 recorded in February of this year. The average for the 12 month was 54.0.

Still, this was the 30th straight month in which the services sector had improved, or shown growth. However, at a 52.1 reading, this is a very tenuous growth rate, and one that could indicate some contraction in the months to come, if the current weakening trend does not reverse itself soon.